Opinion: Parachuting off the Patent Cliff

As the United States edges ever closer to the dreaded fiscal cliff, the pharmaceutical industry approaches a precipice of its own.

Sandra S. Lee
Dec 6, 2012

WIKIMEDIA, WING-CHI POONDrugmakers are currently in survival mode as patents on existing blockbuster drugs expire, forcing Big Pharma companies to parachute off the proverbial patent cliff. This legal escarpment means the end of patent protection on various blockbuster drug products, opening the market to generic substitutes. What makes the current timing so interesting is the large quantity of hugely profitable drugs whose patents have expired in the last few years or will expire soon. Over the past few years, the patents have expired for Enbrel, Zyprexa, Plavix, Arimidex, and Lipitor. This year, Seroquel, Actos, Singulair, and Lexapro have gone or will go off patent. In the coming 2 years, drugs including Oxycontin, Cymbalta, and Nexium will expire. With the loss of patent protection on so many blockbuster drugs, Big Pharma’s financial outlook is unsteady.

With the end of market exclusivity, drug companies are faced with billion dollar revenue losses....

To successfully navigate the changing times, diversification is the key. Research and development efforts have been refocused outward, as one way to parachute safely off the patent cliff. Looking outward, some companies have gravitated towards specialty drugs, orphan drugs, and the biologics market. For example, the IMS Institute for Healthcare Informatics has predicted the launch of 32 to 37 New Molecular Entities (NMEs) annually over the next 5 years.  In spreading the focus beyond blockbuster drugs, companies are creating more alternatives to account for their revenue streams.

Additionally, pharma companies have actively pursued strategic mergers and acquisitions, ranging from mega-mergers to smaller partnerships. Examples of the more notable mega-mergers include Pfizer’s merger with Wyeth and Merck’s merger with Schering Plough. Such mergers allow companies to combine their revenues and consolidate costs and expenses. Mergers with smaller or medium size companies are attractive in that they may have drug targets where preclinical tests or early stage clinical trials have been completed.

Companies are also shifting their focus to emerging markets in India, Brazil, Russia, or China. For example, Novartis is targeting sales of its successful blood pressure medication Diovan in emerging markets in Latin America and parts of Asia in order to maintain a third of its sales. Last year, 80 percent of GlaxoSmithKline’s vaccine distribution took place in emerging markets. 

Some companies are also looking inward towards intellectual property strategies as ways to avoid the patent cliff. With a need for additional patent protection, companies have been investigating options to extend patents by revisiting technologies for further improvements or next generation products. Additionally, strategic filings for accelerated or modified examinations may be sought.

With many strategic options available to a pharmaceutical industry edging closer to the patent cliff, the outlook remains encouraging. After all, the approach of the patent cliff is not an unexpected event. Companies have been well-informed of when their drug products are projected to go off patent. With the inevitable end to exclusivities, opportunities for strategic change have offered a positive outlook. The vast options that have been available to adapt with these changes have shed light on that fact that Big Pharma will continue to flourish after the patent cliff.

Sandra S. Lee is a partner in the Life Sciences practice at international law firm Baker Botts. Prior to her legal career, Lee was in biomedical research at the Brigham & Women’s Hospital in Boston.